CapitaLand (CAPL) fell 4.5% last week amid a volatile trading environment. The biggest property developer in South-east Asia closed at $3.40 yesterday (15 July), 2.4% below its 50-day moving average of $3.48, which may indicate short term weakness in its share price.
 
Macquarie Equities Research (MER) issued a report over CapitaLand this week on Monday 13 July reiterating its 12-month price target of $4.09 following the company’s announcement that its wholly-owned subsidiary had entered a Joint Venture (JV) to set up a US$600 million service apartment fund. Here are some excerpts from the report.
 
On Monday 13 July, CapitaLand announced that The Ascott Limited entered into a 50:50 JV with Qatar Investment Authority (QIA) to set up a US$600m (S$809m) service apartment fund with an initial focus on Asia Pacific and Europe regions. CapitaLand is targeting to launch six new funds with total Asset under Management (AUM) of up to S$10bn by 2020. This JV with QIA is part of the group's efforts to grow its fund management business and pursue opportunities with blue chip capital partners.
 
‌Impact
 
Details of Ascott Global Serviced Apartment JV. Ascott and QIA will each contribute US$300m of equity funds to the JV. The fund will invest in serviced residences and rental housing properties for a term of 10 years with an investment period of three years. Subject to pre-exisitng contractual obligations that Ascott has, the JV will have exclusive rights over deals that are available to Ascott during the investment period. The JV has granted Ascott the right to manage the properties that it acquires and has also given the right of first refusal upon exit to Ascott Residence Trust.
 
Ascott's 5-year plan. The group manages more than 40,000 units currently (over 270 properties and 92 cities in 26 countries) with plans to double inventory to 80,000 by 2020.
 
CapitaLand’s AUM over S$43bn. With this JV, CapitaLand now manages 17 real estate private equity funds and five listed REITs with AUM over S$43bn. Fee income reached S$145m in FY2014 or about 4% of group revenue.
 
‌Action and recommendation
 
About 68% of revenue is recurrent income. The push to further grow its fund management platform MER believes will help enhance its Return on Equity (RoE) over time. The shares are attractive, in MER’s view, trading at 34% discount to MER’s Relative Net Asset Value and at 0.83x Price Book Value.

Source: Macquarie Research - 16 Jul 2015